1

The future of card payments in SEPA

(card payments representing 42% of retailpayments

and 85% of retail cross border payments in EU25 )

Alfred SchmaussChair, EPC Cards WG

Budapest,19 November 2004

EPC PRES-0110/04

FEDERATION BANCAIRE DE L'UNION EUROPEENNEBANKING FEDERATION OF THE EUROPEAN UNION

BANKENVEREINIGUNG DER EUROPÄISCHEN UNION

EUROPEAN SAVINGS BANKS GROUPGROUPEMENT EUROPEEN DES CAISSES D’EPARGNE

UROPÄISCHE SPARKASSENVEREINIGUNG

EUROPEAN ASSOCIATION OF COOPERATIVE BANKSGROUPEMENT EUROPEEN DES BANQUES COOPERATIVES

EUROPÄISCHE VEREINIGUNG DER GENOSSENSCHAFTSBANKEN

2

Agenda

1.1. The MarketThe Market for Cards for Cards

2.2. Expectations for CardsExpectations for Cards by by 20072007

3.3. RRole of the EPC Cards WGole of the EPC Cards WG

4.4. EPC Cards Working Group: EPC Cards Working Group: StatusStatus

3

1. The Market for Cards1. The Market for Cards

4

EU vs.Single Euro Payment Areain card payment transactions ( not ATM transactions)

EU25 = 17.5 Billion card payment transactions EU15 = 17 Billion card payment transactions (97% of EU25) EU12 = 12 Billion card payment transactions (70% of EU15)

France35%

NL10%

Spain8%

Italy8%

Belgium6%

Portugal5%

Finland4%

Austria2%

GreeceLux.Ireland

Germany21%

UK26%

France23%

NL7%

Spain6%

Italy5%

Belgium4%

Sweden3%

AustriaLux.

Greece

Denmark3%

Finland3%

Germany14%

Portugal 3%

Ireland

EU15 EU12

5

Different types of cards examples in Europe

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

UK FR DE NL SP IT BE PT

Credit

Charge

Debit

Source: RBR - Payment Cards in Europe - 2004

Number of payment transactions by country and by type of cards

*) Without „OLV“ in DE ( to be stopped by 31.12.06)

6

2. ECB Expectations for Payments by 2. ECB Expectations for Payments by Card by 2007Card by 2007

7

G. Tumpel-Gugerell (ECB):G. Tumpel-Gugerell (ECB):“Time to act: clear objectives and a convincing Roadmap for SEPA” (Sept. 6“Time to act: clear objectives and a convincing Roadmap for SEPA” (Sept. 6 thth

2004)2004)

“Real SEPA is achieved when people can make payments throughout the whole euro area from one bank account, or by using one card as easily and safely as a national payment is today”.

Request for concrete action plan and timetable

End game for EU-12 (Euro Countries):

• Card solutions by 2007• Credit transfers by 2008 at the latest• Priority credit transfers by 2008 at the latest• Direct debit by 2008 at the latest

Consolidation of infrastructures by 2010 at the latest

8

…Continued

• Our objective:Our objective:« To turn the euro area into an area where stakeholders can use any card any card at any terminalat any terminal (whether POS or ATM) or remotely to pay – at least – under the same conditions as they can today at national level with national cards »

G. Tumpel-Gugerell (ECB), EFMA Conference on « Cards and Payments », Paris, September 21th 2004 at EFMA

This is the « SEPA for Cards*)SEPA for Cards*) » concept

--------------------

*) Remarks : « Single Euro Payment Area »

- is a moving target for non € countries

- midterm standards are relevant as in Eurozone ( leadtime and

bank ownership structure within new EU countries)

- Euro Conversion has a long preleadtime anyway

9

…other implications

Pricing Pricing outside ECB and EPCoutside ECB and EPC is is under pressure by different stakeholders and authoritiesunder pressure by different stakeholders and authorities

Service LevelsService Levels

Wider acceptance of bank cards by retailers

Abolition of geographical limitations on card issuing and acquiring ; « on us » to become SEPA based

Card processing industry in restructuring process Governance of domestic and global cards schemesGovernance of domestic and global cards schemes Legal environmentLegal environment: :

Clear New Legal Framework, defined and implemented uniformly across EU ( “PSP”/”PSU” based)

StandardisationStandardisation:Defined and uniformly implemented standards that facilitate

interoperability – based on EMV , Chip and PIN only

10

3. The role of the EPC and EPC Cards 3. The role of the EPC and EPC Cards Working GroupWorking Group

11

the SEPA Debit Card Scheme the SEPA Debit Card Scheme

Delivering a payment scheme for debit and account-linked cards

Segregation of ‘scheme’ and ‘operators’, allowing for an overall scheme framework operated by multiple infrastructures

Implementation by 2007 in Single Euro Payment Area , but SEPA 29 for cards to follow

Adaptation of domestic and global schemes Consistent with P€DD , NLF and EMV roll out 2007 Additional attention to implications of channels for e-payments

(web retailers) and mobile payments and security Continued work on the implementation of the 8 EPC Card

Recommendations till 2007

12

EPC Cards WG:EPC Cards WG:the 8 Recommendationsthe 8 Recommendations

1. Reinforce actions to prevent and combat fraud

2. Schemes present tariffs to members in a transparent, SEPA-objectives consistent manner

3. Schemes amend rules & convention to allow SEPA-wide operations

4. Promote self-regulation and co-operate with regulators/ legislators to remove barriers

5. Strive for greater levels of technical standardization

6. Banks exert their responsibilities as stakeholders in domestic and international schemes

7. Define with the ECB an aggregated high-level statistical data collection and distribution process

8. Establish the Cards WG as the body to monitor Recommendations and debate new issues

13

4. EPC Cards WG: Work Status4. EPC Cards WG: Work Status

14

Cards WG: Work Status (1/2)

Business Model:Business Model:• July 2004: 12 national and international cards schemes’ self-assessments

(re. compliance with Recommendations 2 and 3) received – Further evaluation dialogue necessary

• re. consistency with Findings & Recommendations on « direction », « dates », and « concrete content » for SDCS

New Legal Framework New Legal Framework ((Version 4.0)• Critical points for the cards business are: payments service providers,

security of payments services, rules on data protection, availability of monetary claim on a payment account, allocation of losses between parties

• Relevant representation made to European Commission

• Waiting for Version 5.0….

ECB Cards Statistical projectECB Cards Statistical project: :

• To provide a realistic picture of the European cards market

• To be completed by year end / 4.Q 04 to start for new EU countries

15

Cards WG: Work Status (2/2)

Card Fraud Prevention:Card Fraud Prevention:o 3rd EMV implementation snapshot (Oct. 2004): migration is less speedy

than expected. Tracking now in place for issuing and acquiring till final target date 2007

o European antifraud database opportunity and feasibility study: proposal under development

o Card Stop Europe: EPC Position Paper submitted to the European Commission

o EU Fraud Prevention Action Plan 2004-2006: Dialogue with EC, incl. proposal on restructuring the Fraud Prevention Experts Group (FPEG)

o European antifraud toolkit (matrix of tools set by types of attack, for practitioneers): model validated by Card Fraud Prevention Task Force; to be deployed

• Standardisation: o Priorities for card specifics to be set for SDCS , EMVCo

16

EMV Implementation Snapshot 3Q 04 EU 15EMV Implementation Snapshot 3Q 04 EU 15

Debit cards converted

Credit cards converted

POSs converted

ATMs converted

Austria 68% 25% 0% 37%

Belgium 0% 62% 1.2% 99.2%

Denmark 77% Pilot 2% 65%

Finland 45% 0% 0% 70%

France 5.5% 5.5% 11.5% 50%

Germany 24% 1% 0.008% 0%

Greece 0.15% 1.25% 16.5% 5.5%

Ireland 4% 25% 20% 20%

Italy 0.1% 0.1% 0.1% 0.1%

Luxembourg 0% 40% 100% 80%

Netherlands 0% 0% 0% 0%

Portugal 0% 0% 0% 0%

Spain 0.001% 0.007% 0.29% 12.25%

Sweden 26% 4% 0% 83%

UK 58% 71% 70% 81%

TOTAL 25.9%25.9% 16.2%16.2% 29.2%29.2%